Debt fears may rise as economic recovery ‘threatened’

The UK economy is under threat from a variety of sources, all of which may choke off the recovery, an economist has said.

Such a potentially gloomy prognosis was given by senior economic advisor to the Ernst & Young ITEM Club Andrew Goodwin.

He said recent data hints at low growth in the first quarter of the year, commenting: “We expect to find that the economy has largely stagnated for the past six months.”

Mr Goodwin added: “We expect momentum to gradually build over the rest of the year but there are many risks to growth, mostly on the downside.”

He said these include the possibility of Middle East unrest causing more increases in oil prices, the impact of government austerity measures, a “premature” base rate hike by the Bank of England and lower consumer spending as a result of declines in real incomes.

Of course, these all amount to possible events rather than certainties, with the likelihood of a rate rise soon perhaps diminishing with the latest inflation figures showing a slowdown in the rate of price increase.

However, if all or any of these factors act to stifle growth or even trigger the dreaded double-dip recession, the result may be a significant rise in the number of people whose finances become so damaged they have to consider serious action.

This may include debt management plans or even individual voluntary arrangements (IVAs), with this involving a negotiated settlement in which reduced monthly payments are made over a period of up to five years and the rest of the debt written off.

Mr Goodwin’s comments come after the International Monetary Fund cut its growth forecast for the UK in 2011 from two per cent to 1.7 per cent.

By James Francis